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posted by n1 on Tuesday August 16 2016, @01:53AM   Printer-friendly
from the money-for-nothing dept.

Reuters and Yahoo Finance report that the Dow 30 NASDAQ and S&P 500 stock indexes all reached record high levels on Monday. According to Yahoo this last occurred in 1999.

Reuters cited as possible factors speculation that the central bank will not soon raise interest rates, rising oil prices due to speculation that oil producers may cut production, and a Bureau of Labor Statistics report issued earlier in the month.


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  • (Score: 5, Insightful) by Non Sequor on Tuesday August 16 2016, @03:07AM

    by Non Sequor (1005) on Tuesday August 16 2016, @03:07AM (#388522) Journal

    Eh, well it's not quite the same thing but it may get interesting.

    One difference between 2000 and 2008 is that risk management policies for institutional investors have shifted to holding higher levels of assets. That's both due to a trend towards greater institutional conservatism (e.g. Basel accords) and lower interest rates being used as an indicator that higher levels of assets are warranted.

    All of that sounds smart enough, but in 2008, a lot of assets vaporized. Common wisdom says that after that, central banks propped up asset values (for good or ill, depending on who you ask), but it's not just central banks. Those institutional investors have to respond to their losses from 2008 by acquiring more assets. And they have done that. However, the further drop in interest rates and rise in P/E ratios for stocks reflect that these purchases are taking place faster than new bonds are being issued or new equity valuations are supported by earnings growth.

    Since the interest rates are used as an indicator for the assets they need to hold, it looks like they're fixing their problems more slowly than they're aiming for. So they're going to keep this up for a while.

    It isn't all central bank money that makes this happen though. The increased asset purchases are generated through budget cuts elsewhere. The central bank's action to increase the availability of money partially eases the budget pressure.

    There's also demographic pressure from a larger cohort entering retirement ages increasing demand for safe investments.

    None of this necessarily leads to an obvious bubble burst scenario over the short term though. It's just that there is a high level of asset purchases purely to serve as tokens relative to other obligations rather than a fundamental investment case for the asset. If they do this with relatively high quality assets, then there are only issues if an asset that is believed to be high quality suddenly implodes. That seems like a smart thing to predict, but if it's going to happen, it's not obvious where it's going to come from.

    Other possibilities for how this might play out are that we could tread water for a very long time, or alternatively, beneficial developments like corporate earnings growing fast enough to bring the P/E ratios back down, or heavier issuance of debt with high quality bona fides. If conditions relax, then the fact that they maybe overpaid for assets last year basically amounts to them having prepurchased a share of the assets supported by this year's growth.

    Other more subtle questions relate to the implications for the economy when asset values are elevated and ownership is concentrated to certain uses.

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  • (Score: 0) by Anonymous Coward on Tuesday August 16 2016, @03:25AM

    by Anonymous Coward on Tuesday August 16 2016, @03:25AM (#388532)

    I stopped playing the stock market in 2000, the day my penny stocks shot up to $15 per share. Then I retired.

  • (Score: 3, Insightful) by FatPhil on Tuesday August 16 2016, @08:39AM

    by FatPhil (863) <pc-soylentNO@SPAMasdf.fi> on Tuesday August 16 2016, @08:39AM (#388617) Homepage
    > assets vaporized

    And there's yur problem. There used to be a time when "asset" meant "thing of value", but alas it now seems to mean "thing which might potentially have value". And the value of assets is being defined in terms of the value of other assets - hopefully nobody follows the dependency far enough to realise that everything relies on (the value of?) self-levitating bootstraps.
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